When is the best time to apply for the Canada Pension Plan? Is it at age 60, 65, or 70? There’s no one-size-fits-all answer to this important question. It depends on your personal socioeconomic status, which changes over time. It factors in all kinds of hypotheticals, the type and the amount of your other retirement income, your life expectancy, and your civil status. And don’t forget about the tax implications and the other benefits to which you may be entitled.
What is the Pension Plan?
The Canada Pension Plan (CPP) offers a retirement benefit calculated according to the contributions you made during your working years. You can start withdrawing this source of income at age 60, at a reduced amount, or wait until you turn 70 and receive a higher monthly amount.
- Withdrawal at age 65: The maximum benefit is $1,175.83 per month, in 2020.
- Withdrawal before age 65: A decrease of 0.6% per month applies. This decrease can reach 36% for a person who starts their pension at age 60.
- Withdrawal after age 65: An increase of 0.7% per month applies. It can reach 42% for a person who waits until age 70 to apply.
What should I do?
For some people, advance payments are the way to go. For others, it’s best to wait until age 70.
Apply at age 60 if:
- Your pension income is low. If your income remains low, you may also be eligible for the Old Age Security supplement when you turn 65. If you wait until age 65 to start your Canadian pension (which will be higher, as a result), this supplement could be reduced or eliminated altogether.
- Your net retirement income is at least $77,000 per year. If you wait until age 65 to start your Canadian pension and your net income exceeds $77,000, your Old Age Security benefit will decrease in proportion to the excess amounts received.
- Your health condition or family heredity means that your life expectancy is lower than average. You could receive a higher benefit, even if you start your federal pension before age 65. By the time you turn 74, you will have received approximately the same benefit amount, if you opt to start at age 60 or age 65 and collect the maximum amount to which you are entitled.
- If both you and your spouse receive a high amount from the CPP, the survivor’s pension may be decreased or eliminated. When combined, the deceased’s and the survivor’s combined CPP amounts correspond to the maximum benefit of the Canada Pension Plan (payable at age 65).
Apply at age 65 or older if:
- Your taxable income is very high between the ages of 60 and 70, but will subsequently decrease. If your income already places you in a higher tax bracket, any CPP income will exacerbate this. If you do not need the additional income, it’s better to wait.
- Your life expectancy is above average. If you wait until you are older, the total amount received from the Canada Pension Plan will be higher than the amount you would have received if you had started collecting your benefits sooner.
- Your spouse receives a low amount from the CPP. If you have the room in your budget to wait until age 65, your benefits will be higher. If one spouse dies, the combined pension may be higher.
The solution: An assessment
A thorough assessment of your finances and your retirement income is the best way to make an informed decision. Ask yourself certain questions: will I need this income as soon as I turn 60? What is my life expectancy? What is my spouse’s situation?
Regardless of your situation, we recommend meeting with your financial planner before making this important decision. That way, you can maximize the benefits to which you are entitled, all while minimizing tax implications.
Serge Breton, CFP
North East Region